Transaction Banking as the Future of Sustained Growth – The India Story

By Dinesh Verma, Head, Product Management, Global Transaction Banking, Nucleus Software


Dinesh Verma, Head, Product Management, Global Transaction Banking, Nucleus Software

The growing interest in India as a banking market is inspiring a bunch of M&A deals and increased fund allocation by global players. Factors such as expected surge of infrastructure investment, regulatory changes, increasing sophistication of products and solutions are playing their part in this growth story.

According to industry reports, India’s banking sector is currently valued at Rs.81 trillion ($1.31 trillion). It has the potential to become the fifth largest banking industry in the world by 2020 and the third largest by 2025, according to an industry report. The face of Indian banking has changed over the years. Banks are now reaching out to the masses with technology to facilitate greater ease of communication, and transactions are carried out through Internet and mobile devices.

The transaction banking services industry is continually changing, as are the needs of treasury departments. Commercial banking in India is poised for a sharp growth riding on increased focus of infrastructure; MNC’s expanding operations in India and of course Indian corporate winging out to global shores. This will lead to greater focus on standardization, personalization, centralization and automation. India has always been at the centre stage of the Asia-Pacific cash management and the transaction volumes processed by banks (local as well as foreign) are a testimony to it. Being a regulated economy, the constraints put in by various statutes leads to banks coming out with varied transaction banking products and services to meet the growing needs of the corporate; whose needs are no different from any other corporate functioning across the globe.

Traditionally, having a paper-based clearing system involving not only high processing cost but security risk, cash management in India has certainly undergone a paradigm change. From a product-centric approach, the focus for almost all banks today has shifted emphatically to the customer. And success is all about bringing the maximum possible delivery channels to the prospect's doorstep. The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological infrastructure; electronic banking, cheque imaging, enterprise resource planning (ERP), and real time gross settlement (RTGS) are just few of the new initiatives. Growing trade volumes has necessitated the need for a more sophisticated payments infrastructure. The growing focus on automation, cutting down of float cycle and financial inclusion has led to creation of innovative offerings such as Interbank Mobile Payment Service (IMPS), National Automated clearing house (NACH- operated by National Payments Corporation of India (NPCI)), Cheque Truncation system, adopting ISO 20022 payment messaging standards, Aadhar Payment services and not to mention its innovative unique identity verification scheme (To empower residents of India with a unique identity and a digital platform to authenticate anytime, anywhere)  - means that India now has the robust platforms it needs for sustained growth and on-boarding a large nation onto one, consistent and highly advanced financial system.

The Inflexion Point; Leveraging Synergies Across Business & Technology

Indian bankers have noticed that with expanding global trade, end-user clients are advancing in the evolution of treasury and finance functions, and are seeking greater value-added service from their service providers – including broader and more effective global reach. The key question for banks is no longer to know how transaction banking is revolutionizing commercial banking, but how to deliver value to customers, being agile enough to cater to the changing market needs, looking beyond the obvious and how to keep the business afloat by generating optimum returns. Needless to say, today, customers implicitly expect and demand efficiency, reliability, standardization, personalization, flexibility and easy access to working capital, no matter what product or service they are using and in what geography.

Apart from enhanced cross-currency liquidity management, corporate increasingly require highly granular information about all participants in its financial value chain and status of all transactions processed so as to predict accurate cash flow needs. This is leading to increased demand for highly evolved technological capabilities that can enable the customer to effectively manage its working capital. In such an environment, the ability to recognize and capture market share depends entirely on the bank's competence to evolve technically and offer the customer a seamless process flow. Markets are also becoming increasingly commoditized so innovation in the form of value added services is the only differentiator. Increasingly, the pressure is on Banks to offer integrated transaction banking solutions that meet existing and future customer needs by providing seamless, integrated, real-time and consistent experience across multiple channels. Banks are looking  beyond run-of-the-mill transaction banking products and services flanked by payments, payroll, receivables and other singular processes and focus on offering personalized and wholesome working capital management solutions revolving around customer’s operating working capital cycle; gone are the days of  “one size fit all” approach.

Customers need to view and manage their total financial position; anywhere and anytime, with higher focus on STP, personalization, interoperability and standardization. IT product players like Nucleus Software are working closely with banks to meet and exceed client requirements and be able to offer innovative solutions for corporate customers to have total transparency, freedom and greater control, allowing them to manage their corporate finances as easily and conveniently as private customers. When it comes to channel accessibility, the impact of mobility on individual consumers and commercial customers can’t be negated. Mobile has created a new channel through which banks can provide the convenience of anytime, anywhere banking to their customers. With a global experience of over 27 years, Nucleus Software has the right mix of products and understanding to support its customers in such areas and enable them to stay ahead of the game.

Concluding Thoughts

Despite having the greatest diversity in language, culture, and hence, business practices in the world, India provides a wide array of opportunities to the banks to have transformational growth outside their traditional strongholds. Transaction banking revenues in India account for close to 30 percent of total banking revenues, though as a global business it has largely remained under-leveraged despite being one of the most resilient businesses during financial crisis. Regardless of shrinking margins, significant revenue growth of approximately 170 percent or a compounded annual growth rate of roughly 11 percent is expected from 2011 to 2021 (Source: BCG, Transaction Banking advantage, 2012). With right focus, proper positioning and alignment with customer preferences, we believe that transaction banking will continue to deliver value and be a front runner for being the shining and guiding star for banks.

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